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Real Estate Markets

The Lessons of History…Indian Real Estate and Equity Markets still go Hand in Hand

By COVID-19, Housing policy, India, Mainstream Impact Investment, News, Real Estate Markets

For every action there is an equal and opposite reaction: that’s why you can expect a reaction (quite a powerful one actually) if you present your loved one with last minute flowers from the service station. But not so fast, not every action produces pushback: some move together, following the same trend in lockstep. And nowhere is that more true than economic markets. Take equity and real estate for example: history tells us that in the long term, stock and property prices will tend to move together in the same direction (up or down), and in the short term an increase in residential property prices will also push stock prices up.

But before you get on the phone to your broker, a word of warning about what history can tell us about the future…

Although the 1960’s were written in Technicolor, the 1970’s were distinctly beige: the sixties swung, landed a man on the moon and gave us the Beatles, but the seventies limped through Watergate to the music of the Osmonds (I’m using the word “music” loosely here)…and they also gave us Stagflation. Anyone who studied economics in the dark days before Kylie Minogue recorded “I should be so lucky” will be familiar with the Phillips Curve: the theory that high rates of unemployment couldn’t co-exist with high inflation, because higher unemployment meant less earned income, and less earned income meant lower inflation. It all made sense on paper and for a while it worked in practice too, but there was a small flaw in the theory…it was nonsense. Stagflation reminded us that unemployment and inflation could be delivered together, at unprecedentedly high levels as part a beige coloured double whammy. The Phillips Curve said it couldn’t happen…but it did.

So is economic orthodoxy equally flawed when it comes to that important correlation between short-term housing and equity markets?

Well, to test the theory, let’s take a look at trends in Indian markets over the last six months (which, as the short term goes, is pretty short term).

After the initial shocks of COVID 19 had been absorbed and lockdown measures eased, there has been a marked increase in confidence across the subcontinent’s real estate sector, driven in substantial part by the Indian Reserve Bank’s fiscal stimulus package and interest rate reductions, as well as tax breaks and incentives introduced by Prime Minister Modi’s Government. And that old perennial was helping too: moving into your new home by Christmas. Knight Frank India reported “improved sentiment” (www.knightfrank.co.in) and the mid (affordable) segment saw bellwether rental prices increase sharply by up to 9% year on year. After the COVID enforced lull, developers are also resuming and accelerating construction projects to pick up the slack, with 90% of the labour force now back on site. Property prices are rising across the board.

That’s all well and good, but what about India’s Equity Markets? What were they doing over that same six-month period?

The answer is that since June of this year 95% of BSE500 stocks have risen in price, with the benchmark BSE Sensex Index surging by 37% (after hitting a 52 week COVID low in March). And tellingly for present purposes, Indiabulls Housing Finance more than doubled returns for investors in Q4 (www.indiabullshomeloans.com), further fuelling demand for India’s burgeoning demographic and bringing closer the dream of owning a home of their own.

All of which means that when it comes to Indian Real Estate, it looks like economic orthodoxy still holds good after all: Property Markets and Equity Markets are moving upwards together. But even so, think twice before bringing home those service station flowers for Christmas…you might not get the reaction you were expecting.

Executive Overview

As someone who works on a daily basis in financial markets, I know economic theory can go wrong as often as it sets us right: but keep an eye on that key variable between property and equity markets, it’ has to be a core part of our forward planning.

And the variable is working better than ever in India.

Have a great Christmas and a prosperous new year from all of us at Red Ribbon.

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Better Connected than Ever? – How Connectivity boosts Indian Real Estate.

By Affordable Housing, Blackstone, Construction Technologies, COVID-19, Economic Growth, Environmental Policy, Housing Need, Housing policy, India, Natural Capital, News, Real Estate Markets, Sustainable Growth

All roads lead to other roads: a dizzying complexity of cables, rail and road networks have literally girdled the earth, making us better connected than ever before. A hundred years ago it took twenty days to travel by steamship from London to Mumbai, now it takes nine hours by plane.

Subject to lockdown restrictions, you can cross the English Channel in two hours by ferry (plus three more waiting for the driver in front to get back to his cab), or else zip through the Tunnel in 30 minutes; and the electrons that carry your Internet messages travel at 2,200 Km a second, which is probably why Zoom is doing so well at the moment.

But none of this happened by accident: it was all planned, built and delivered to meet economic demand…except, of course, the electron, which does what it does by itself. Economic progress is everywhere driven by connectivity.

And that’s where Big Government comes in: periodic swings in the private funding cycles needed to build all those airports, roads and railways are increasingly being offset by government deficit spending programmes (or quantitative easing as it’s now known: the deficit’s more attractive, younger sister). Only big government is big enough to dampen regular (and inevitable) private sector investment fluctuations, which is why most advanced economies over the last forty years have set fiscal spending targets of up to 20% of GDP.

Nothing less will level out the swings and troughs, and without it the roads, railways and airports won’t get built at all…the Channel Tunnel started out as a private venture, ran out of money and finished up nationalised in all but name. Without Big Government you wouldn’t be able to zip under the Channel …you’d be stuck behind a lorry at Dover.

It’s a lesson India has taken to heart.

Connectivity boosts Indian real estate. How?

Over the next ten years the subcontinent is expected to invest a staggering $715 Billion in its new rail networks, with full electrification expected by 2024 and the entire system becoming carbon neutral by 2030 (www.ibef.org/industry/indian-railways).

By 2050 India’s railways will comprise 40% of rail services across the world, meeting a surge in passenger numbers driven by an increasingly wealthy travelling public. All of this is being powered by Big Government (Prime Minister Modi’s Government to be precise): including a programme to expand investment in new rail terminals, new stations and more extensive container operations across the subcontinent (www.outlookindia.com).

And the picture is pretty much the same on India’s highways where the network has doubled in size (from 71,000 Km to 142,000 Km) in the last ten years. As with rail, the expansion is being driven at pace to meet unprecedented levels of demand from a burgeoning and increasingly wealthy population, in stark contrast with the United Kingdom where road traffic levels have increased by 80% over the last twenty years, but capacity has risen by a sluggish 10% annually: and even that unimpressive figure is falling off year by year.

All of which means India is now better connected than ever before; and in combination with those same (unprecedented) demographic trends on the subcontinent, enhanced connectivity is also having a radical impact on India’s domestic housing markets. New Science parks in Chennai and Bangalore and new railways and highways in Mumbai are pushing prices through the roof as an increasingly urbanised population embraces the opportunities offered by better communication systems.

The improvements to connectivity boosts Indian real estate. So with all roads leading to other roads, it means we’re better connected than ever before…but nowhere is that more apparent at the moment than India.

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Executive Overview

I suppose it’s a truism that property values are all about location (and location, location): but what’s interesting in India at the moment is just how radically the location itself is changing.

Taken together with an increasingly wealthy, tech savvy and burgeoning population, the Modi Government’s radical infrastructure programmes are re-shaping the commercial environment and pushing property prices higher than ever before.

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What’s Growth got to do with it…as it happens plenty, and Indian Infrastructure is a key driver for Housing Policy

By Affordable Housing, Construction Technologies, COVID-19, Housing policy, Real Estate Markets, Sustainable Growth

Keynes wondered about kick starting an economy, paying people to bury bottles with £10 notes in them, and then paying others to dig them up and spend the cash. Of course, the great man’s tongue was probably firmly in his cheek, but he was making a serious point: modern economies are driven by expansionary policies. That’s what lies at the heart of quantitive easing strategies. But it’s much better to spend those £10 notes on roads that don’t go nowhere, which is why infrastructure policy is so important. And there’s no better example of that at the moment than India, which has seen unprecedented infrastructure spending over the last decade and COVID has done little to slow it down.

This month alone Indian Railways launched 22 new local and 18 main line services in Mumbai (on 10 October); on 12 October the 11 km rail tunnel connecting Howrah to Salt Lake (via Kolkata) was completed (part of a 17 km system including 6km of elevated sections), and the Union Ministry of Road Transport announced 2,921 km of new highways had been completed as part of the Bharatmala Pariyojana Project. All of which are having a knock on effect on expansion across key areas of the Indian economy, including housing and construction, which are growing like never before. Those roads certainly aren’t going nowhere…

Since 24 September The BSE Sensex Index (which tracks stock on the Bombay Exchange), has rallied by nearly 11%: its strongest performance since June, the best of any equity benchmark anywhere in the world. And it’s now within 2% of wiping out its entire losses for the year to date: given the economic shocks of COVID 19, that’s no mean feat. 

Sameer Kaira (of influential, Mumbai based Target Investing) has predicted a third quarter bounce in GDP on the subcontinent, with Sensex likely to hit a record high by December. With a Delphic sense of understatement, Kaira highlighted a key factor as “various steps taken by policy makers”. But what does he mean by that?

Well, for a start Prime Minister Modi’s Government is set to relax COVID restrictions further, allowing schools and entertainment complexes to re-open from October 15, and also loosen restrictions on large gatherings: so that’s certainly one important step from a policy maker. But more expansive policymaking hasn’t gone away either. The Reserve Bank’s Monetary Policy Committee has announced further steps to increase liquidity: leaving the repo rate (the rate at which it lends to other banks) unchanged at 4% and promising to maintain its “accommodation stance” well into the next fiscal year. The Governor of the Bank also announced another round of quantitative easing as part of its Operation Twist initiative, much to the delight of financial markets and external investors (10 year Bond yields fell to 5.9%).

All of which is fuelling the infrastructure boom.

And because all those roads, trains and tunnels aren’t going nowhere, its also giving added impetus to India’s Real Estate Markets: primed to meet the needs of the fastest growing population on the planet and spurred on by the Government’s Affordable Housing Programme. Better infrastructure suddenly makes building projects across the country a much more attractive proposition. 

It’s certainly better than burying cash in a bottle…

Modulex Construction is the World’s largest Steel Modular Building Company. It was established by Red Ribbon to harness the full potential of fast evolving technologies and deliver at pace to meet the subcontinent’s evolving needs.

Find out more about Modulex

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Modulex is setting up the world’s largest steel modular buildings factory based in India. It was established by Red Ribbon to harness the full potential of fast-evolving technologies and deliver at pace to meet the evolving needs of the community.

Modulex is setting up the world’s largest steel modular buildings factory in India.

Executive Overview

With a further easing of lockdowns underway, the subcontinent’s financial markets are starting to move forward: faster than other equity markets across the world. And that has a lot to do with the Central Bank’s Operation Twist Programme, which is fuelling growth across the country.

No surprise then that the impact of these emerging trends will be first felt in Infrastructure policy, something I’m sure will act as a key driver for the rest of the economy.

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Joining the Dots for the Future…A walk around Indian Real Estate Markets

By Blackstone, Construction Technologies, COVID-19, Housing Need, Modular Construction, Real Estate Markets

History doesn’t move in straight lines, we’re much too unpredictable for that: so nobody should be surprised that in the same month as a group of glum beancounters at the Office for National Statistics reported a 20.4% slump in GDP for the UK (the worst ever), their happier colleagues at the Land Registry were trumpeting a 2.6%, year on year increase in UK property prices. There isn’t a straight line between the two: the underlying decisionmaking is just too unpredictable to allow for anything more than a childish squiggle. It’s what practitioners of the dark arts of econometrics call “a random walk”, like a drunk stumbling home from the pub: we know where he started out from and where he ended up, but it’s the bit in the middle that’s a mystery. Why did the catastrophic oil crisis of 1973 barely make a dent on US property prices, having sent the rest of the economy into free fall? Why did an otherwise localised slump in US property prices cause economies across the world to crash in 2008? These are random walks between two points (or pints in the case of our drinker) … the trick is to join the points up. 

Which means searching for medium and long term trends, key drivers that act as a platform for what the future might look like: and there’s no better example right now than India’s Real Estate Markets.

According to an influential IBEF forecast, Indian Real Estate will be worth $1 Trillion within the next ten years (from a base of $120 Billion in 2017), and by 2025 (just five years away in case we forget), the sector as a whole will make up 13% of the subcontinent’s GDP. That’s worth reflecting on: despite the near term, COVID driven shocks, not to mention the pandemic’s catastrophic impact on overall levels of social cohesion, there is no straight line in sight: the subcontinent’s residential and commercial property markets are showing persistent and robust signs of long term growth, and this particular honey pot is proving as attractive as it was when, in 2019, overseas and mostly private equity investors staked no less than $14 Billion in the sector.

Blackstone alone has invested more than $12 Billion in Indian real estate since 2018: including the first of the subcontinent’s newly established REIT’s, which raised $670 Million in 2019 in collaboration with Embassy Group.

In response to (and partly in anticipation of) that inexorable trend, the Indian Government launched a series of property-related initiatives, including the Smart City Mission: delivering more than a hundred better-connected infrastructure and technology centres across the country and offering a prime opportunity for investors. Add to that the recent launch of the Alternative Investment Fund (AIF), which green-lighted investment across 1,600, previously stalled urban housing projects in major conurbations from Mumbai to Chennai and, of course, the continued resurgence of the Affordable Housing Fund. Prime Minister Modi’s Government has also approved the creation of 417 new Special Economic Zones, of which 238 are now live. Impactful as it might be at the moment, COVID 19 has neither the persistence nor potential to stand in the way.

As Blackstone themselves could no doubt testify, Foreign Direct Investment is a key part of this mix: increasingly responding positively to enhanced levels of market transparency on the subcontinent, a transparency that has acted as a powerful nudge to create a more investment-friendly environment increasingly aligned to western markets (and due diligence requirements in particular).

So there’s no straight line to follow in these turbulent (short term) times, only an increasingly less random walk firmly rooted by a long-term compass. And, to repeat the point, there’s no better example of that at the moment than Indian Real Estate Markets.

Find out more about Modulex

This image has an empty alt attribute; its file name is Modulex-Logo-300x77.jpg

Modulex is setting up the world’s largest steel modular buildings factory based in India. It was established by Red Ribbon to harness the full potential of fast-evolving technologies and deliver at pace to meet the evolving needs of the community.

Executive Overview

Every so often we have to raise our eyes from the papers on the table, and goodness knows we’ve had enough to distract our attention from the bigger picture over recent months: that’s why, as we gradually emerge from global lockdowns, I’m confident longer term trends will be much more important than any of our day to day fixations.

I’m confident, in short, that the future can’t and won’t be navigated by straight lines…

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At Red Ribbon we understand that the transition towards a resilient global economy will be led by well-governed businesses in mainstream markets, striving to reduce the environmental impact of their production processes on society at large and on the environment as well.

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